seat

What It Is

A seat is a license to trade on the floor of the New York Stock Exchange, either as an agent for someone else or for his or her own personal accounts (in which case, the person is called a floor trader).

How It Works

The New York Stock Exchange (NYSE, also known as the Big Board) is the first and most popular stock exchange in the world. It was created in 1792 when two dozen stockbrokers and merchants signed the Buttonwood Agreement. Stocks, bonds, mutual funds, exchange-traded funds, and derivatives all trade on the NYSE.

The NYSE is an auction market where brokers and specialists buy and sell securities for people by matching the highest bidding price with the lowest selling price. When an investor wishes to buy or sell a security listed on the NYSE, he or she "places a trade" or an "order" by calling her broker or going to her online trading account. In either case, the order goes to a broker, who can get the order to the exchange several ways -- through a regional exchange, electronic communications network or directly to the NYSE. No matter how, the order eventually reaches the floor of the NYSE where floor brokers and specialists handle transactions.

Floor brokers execute buy and sell orders on behalf of their clients or the firms they work for. If you wanted to sell some shares of Company XYZ, for example, you might call your broker down the street and place a sell order. Your broker might in turn route the order to one of his firm's floor brokers who are actually on the floor of the exchange. The floor broker approaches the Company XYZ specialist (see below) and executes the trade. Some floor brokers are independent, meaning that they are not employed by any brokerage firm, but provide services to brokerage firms (that is, they work for themselves). In either case, floor brokers are the people doing most of the shouting on the trading floor.

Being a floor broker requires owning a seat on the NYSE.

Why It Matters

Seat holders help ensure an orderly market, which is one of the pillars of a stable financial system. For many, a seat on the NYSE is a symbol of all that is Wall Street. It is the place where fortunes are made and lost, and where the free market can be seen in its most tangible form. The NYSE manages the transfer of trading seats and determines which companies qualify for listing on the exchange. It also investigates and prosecutes violations of NYSE and federal securities regulations and can censure, fine, suspend, expel or bar members.

Although the NYSE expends considerable effort monitoring seat holders, they are also subject to a considerable amount of regulation from several federal agencies, such as the Federal Reserve, and from a host of laws, such as the Securities Exchange Act of 1934.

Source: Investing Answers